Enbridge Inc. (NYSE:ENB) shares are up more than 11.65% this year and recently decreased -0.20% or -$0.07 to settle at $34.70. Fidelity National Financial, Inc. (NYSE:FNF), on the other hand, is up 40.08% year to date as of 09/12/2019. It currently trades at $44.04 and has returned -1.67% during the past week.
Enbridge Inc. (NYSE:ENB) and Fidelity National Financial, Inc. (NYSE:FNF) are the two most active stocks in the Oil & Gas Pipelines industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ENB to grow earnings at a 5.81% annual rate over the next 5 years. Comparatively, FNF is expected to grow at a 8.10% annual rate. All else equal, FNF’s higher growth rate would imply a greater potential for capital appreciation.
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 15.54% for Fidelity National Financial, Inc. (FNF). ENB’s ROI is 3.60% while FNF has a ROI of 12.30%. The interpretation is that FNF’s business generates a higher return on investment than ENB’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. ENB’s free cash flow (“FCF”) per share for the trailing twelve months was -0.13. Comparatively, FNF’s free cash flow per share was +0.58. On a percent-of-sales basis, ENB’s free cash flow was -0.74% while FNF converted 2.1% of its revenues into cash flow. This means that, for a given level of sales, FNF is able to generate more free cash flow for investors.
ENB’s debt-to-equity ratio is 1.06 versus a D/E of 0.17 for FNF. ENB is therefore the more solvent of the two companies, and has lower financial risk.
ENB trades at a forward P/E of 17.39, a P/B of 1.50, and a P/S of 1.88, compared to a forward P/E of 13.91, a P/B of 2.42, and a P/S of 1.59 for FNF. ENB is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. ENB is currently priced at a -22.94% to its one-year price target of 45.03. Comparatively, FNF is -9.4% relative to its price target of 48.61. This suggests that ENB is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. ENB has a beta of 0.58 and FNF’s beta is 0.86. ENB’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. ENB has a short ratio of 6.41 compared to a short interest of 3.76 for FNF. This implies that the market is currently less bearish on the outlook for FNF.
Fidelity National Financial, Inc. (NYSE:FNF) beats Enbridge Inc. (NYSE:ENB) on a total of 9 of the 14 factors compared between the two stocks. FNF is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, FNF is the cheaper of the two stocks on an earnings and sales basis, Finally, FNF has better sentiment signals based on short interest.